Warlick International WCLI Presentation 8 Oct2009

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A Brief Overview of U.S. Unconventional Gas Development – and Future Trends

West Coast Land Institute 27th Annual Conference

Santa Barbara, California – October 8, 2009

www.WarlickEnergy.Info

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Agenda

1. Unconventional Playbook – a Summary

2. Quick Flyover of the U.S.

3. Gas Demand Near-Term/Long-Term

4. Supply, Largely Driven by Gas Shale Evolution

5. Looking Ahead


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1. Unconventional Playbook – a Summary

Well planned early-stage geoscience and leasing are keys to success

Sound geological assessment is critical to strategic evaluation of big unconventional

prospects in North America today

A must: Very astute leasing strategy (e.g. Fayetteville Shale)

Then comes smart drilling & production in unconventional plays

The unconventional endgame is typified by the Barnett Shale – it has now become all

engineering and real estate


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Typical Unconventional Play Rollout

1. Geological evaluation

2. Launch the landmen

3. Execute leasing program, mass up holdings

4. Drill test and delineation wells

5. Go horizontal…and fast!

6. But throughout …you must secure oceans of cash

7. Build on your success


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2. U.S. Flyover -- Leading Gas Shale Basins


Leading Tight Gas Plays

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Leading Coalbed Methane Basins


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3. Gas Demand Near Term/Long Term

Since late 2008, pessimism about U.S. and Canadian economies has been pervasive

That’s true in natural gas also with the tremendous decline in prices

However… economic data since mid-summer is improving

Natural gas is looking better, despite little help from weather or better economic activity

The Administration’s emphasis is on wind, solar and…natural gas


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Electric Power – Critical to Growth in Gas Demand

We are now transitioning from economic recession to economic recovery , albeit slowly

Underlying this in the near term and long term will be faster growth in the demand for electric power

A big reason: More natural gas at attractive prices that can fuel natural gas-fired infrastructure that already exists

Base load and peak load will be critical in the recovery – solar and wind power are not counted on in either category

Summary: Gas-fired electric power generating facilities already in place make gas demand the easiest to grow


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4. Supply, Largely Driven by Gas Shale Evolution

Significant improvements in technologies for drilling, completion and subsurface evaluation have helped ramp up gas production

We think LNG into U.S. will not pose earlier-perceived threats to gas production -- and imports from Canada will remain measured

Natural gas from Alaska will not be significant until the pipeline across Canada is built…well off into the future

On the upside, about half of natural gas consumed comes from wells drilled in the US during the last 3 ½ years

• Overriding this picture is the “Green“ perspective of future legislation and emission-oversight requirements


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Supply Mix in the U.S.

Conventional sources are declining, Alaska “bump” ~ 2020 anticipates pipeline completion

• But onshore unconventional gas will be saving the day


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Gas Shale Capacity Ramping Up

Gas shale development (in green) is producing big results

• Barnett began the trend, newer shales using the technology


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Comparing Three Notable Gas Shales

We compare the Barnett to the newest gas shales with promise

Early science/tech development in the Barnett is paying off

Metrics Barnett Haynesville Marcellus

Estimated Basin Area (Sq. Mi.) 5,000 9,000 95,000

Total Vertical Depth(000 Ft.) 5,400-9,600 10,500-13,500 5,000-8,500

Net Thickness (Ft.) 250-500 200-300 50-200

Original Gas-in-Place/Section (BCFE) 50-200 150-250 70-150

Average Well Cost ($Million) 2.5-4.0 7.0-10.0 3.0-4.0

Gross EUR (BCFE) 2.0-3.5 6.0-7.5 3.0-4.0

Finding & Development Cost ($/MCFE) 1.20-3.00 1.20-2.00 0.90-1.60

Comparison: New High-Growth Shales vs. the Barnett

DOE, Raymond James


Haynesville Shale


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Haynesville in Early Growth Phase

It all began just recently, in late 2007 when Cubic Energy and Chesapeake announced good news about good wells

Then came a land rush followed by vertical wells, which are now trending to horizontal

A big plus: Options to drill into other attractive formations like the Cotton Valley Sand, Cotton Valley Lime, Smackover, Travis Peak and James Lime

The Haynesville has tremendous potential, drawing gas portfolio players like Chesapeake/Plains, Petrohawk, Goodrich, EnCana and others

Quite possible for drilling to triple this year and continue up in 2010


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A Plus in the Haynesville . . . multiple pay zones


Marcellus Shale


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Marcellus is in Very Early Phase, Much More to Come

The Appalachian has a very long drilling history, none of which focused on the Marcellus until recently

Early lease payments were $150-$200 per acre in Pennsylvania, jumped to ~ $3,000 by 2008 with royalty levels 12.5% to 18.75%

It has great advantage in its proximity to Eastern US gas markets

There is need for infrastructure buildup for increasing gas takeaway

Early results on these wells are excellent

Accordingly, there is influx big players like Chesapeake/StatoilHydro, Range Resources, Cabot, EQT and many others

At midyear, Marcellus drilling was 2X that of 2008 and should continue; a great development future is in the cards


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5. Looking Ahead

1. The natural gas sector has a ways to go yet, but there is anticipation of improved prices, declining production and slowly-recovering economic conditions into 2010

2. Unconventional gas will be a bulwark for future supply, while LNG landed in North America is dependent upon world economies’ economic recovery and Eastern Hemisphere LNG demand

3. Gas imports to the U.S. from Canada should remain at present or lesser levels

4. That leaves a bigger role for unconventional gas development in future years

5. For the immediate we anticipate supply/demand balance coming soon as demand improves and production declines

6. Result: Firming prices, slightly better conditions for development showing up late-2009 and improvement in 2010


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End of Presentation


Warlick International WCLI Presentation 8 Oct2009

Technology

Transcript of Warlick International WCLI Presentation 8 Oct2009